Capital Wave Forecast

Like a runaway train the market kept barreling ahead last week, make that last month, make that the last two months, actually make that since the March 23, 2020 lows.

The S&P 500 ended last week up 3%. It ‘s up a whopping 17.79% in the last two months. And is up a mind-bending 36.06% from its March lows.

So far so good. But, there ‘s a problem. No one knows where the train tracks lead.

Markets could have gotten off track on Friday. The Dow was down about 300 points as nervous investors pared positions ahead of President Trump ‘s “conference.” But, instead of slamming China and ratcheting up rhetoric, or tossing trade war and tariff threats, the President just pointed a finger and repeated his displeasure with the Mainland ‘s heavy handedness over Hong Kong ‘s future.

And back up went stocks.

What pre-conference selling revealed is how jittery investors are, but there ‘s a lot out there that matters…

Summer’s not officially here yet, but the heat sure is. Markets are sizzling and investors are feeling it.

It’s Risk On, all the way.

Until of course the heat wave investors are enjoying gets dumped on by any number of named storms brewing out on the near horizon.

What storms?

Bella-Bankruptcy, Brad-Breadth, Elanor-Unemployment, Maggie-Mortgage, Ralph-Retail, and Ollie-Overpriced. They’re just tropical depressions according to bullish forecasters. At least they are for now.

So, get your Risk On!

What a week equity investors had.

The Dow Jones Industrials rose a robust 2.56% last week. The S&P 500 rose a resounding 3.4%. And the never-not-leading Nasdaq Composite skyrocketed 6% higher.

That’s what I call getting it while you can, which is what I advised investors do last week.

While markets look crazy soaring every week, initial unemployment claims rise by an average of 4,100,000 per week; and benchmarks shot even higher last week as the Bureau of Labor Statistics reported 20.5 million jobs were lost in April and the nation’s unemployment rate leapt to 14.7% (wink, wink, BLS admitted it’s likely 5 percentage points higher, but seasonal and other haircutting, face-saving, adjustments wouldn’t let that headline fly), they may be right to pat themselves on the back.

That’s because the “V-shaped” recovery investors expect is self-fulfilling. I’m not talking about the economy’s recovery. I’m talking about the market’s recovery. It’s V-shaped, for sure

Call it confirmation bias.

As investors see more bad news, they see it getting closer to being the worst its going to get and that means we’re closer to turning around and that means buy, buy, buy. They see the economy opening as confirmation we’re on the other side of lockdowns, and stores and businesses opening as a reason to buy, buy, buy. Everything bad to do with the pandemic is behind us is what optimistic investors believe.

That’s confirmation bias in action.

That’s why the market’s experienced a V-shaped recovery.

More importantly, they say better than expected earnings keeps confirming their biases.

It’s all good. Until it isn’t

I’m going to let Janis Joplin tell you what to expect and what to do with equity markets this week and this month.

“Get it while you can.”

That title lyric was on Janis’ 1971 posthumous album Pearl, and it’s what investors need to remind themselves to do.

Because the dramatic bounce off the March lows has maybe a little more to go, at least for some stocks, before markets give up the ghost of depressions past and head back down to earth, maybe below, meaning towards the fiery place way under our feet.

But not all is lost, yet. Before the storm last week, which came Thursday and Friday, stocks were riding news that big tech earnings were hardly indicative of a depression on the horizon…

Despite the economy heading down a rabbit hole, stock markets are looking up, not down.

It doesn’t matter that it seems crazy, and it yet may be just that, but investors are betting the worst’s behind us, at least for markets, and the other side of all the panic and shutting down is here.

After all, countries are reopening. Businesses are reopening. And people just want to go out…